Wednesday 1 February 2012 13.56 EST
First published on Wednesday 1 February 2012 13.56 EST

A leading architect of the austerity programme in Greece – one of the harshest ever seen in Europe – has admitted that its emphasis on fiscal consolidation has failed to work, and said economic recovery will only come if the crisis-hit country changes tack and focuses on structural reforms.

Poul Thomsen, a senior International Monetary Fund official who oversees the organisation's mission in Greece, also insists that, contrary to popular belief, Athens has achieved a lot since the eruption of the debt crisis in December 2009.

"We will have to slow down a little as far as fiscal adjustment is concerned and move faster – much faster – with the reforms needed to modernise the economy," he told the Greek daily Kathimerini, adding that the policy shift would be "reflected" in the conditions foreign lenders attached to a new rescue programme for Athens.

In an extraordinary departure from the script the IMF has followed to date, the Danish official, who is also in charge of the IMF programme in place in Portugal, acknowledged there was a "limit" to what society could endure.

"While Greece certainly will have to continue to reduce its fiscal deficits, we want to ensure – considering that social tolerance and political support have their limitations – that we strike the right balance between fiscal consolidation and reforms," he said. As such, the IMF had cautioned against "an excessive pace" of fiscal reduction.

Dispelling suggestions that negotiations were fraught between the Greek government and the EU, ECB and IMF – the "troika" of creditors – Thomsen said talks over a new aid package would be "completed very soon; it is a matter of days".

Athens's first financial lifeline – a €110bn bailout granted in May 2010 – relied heavily on belt-tightening measures that included hefty tax rises and across-the-board wage and pension cuts. Although the policies helped bring down Greece's primary deficit from €24.7bn in 2009 to just over €5bn in 2011, they have proved to be explosive, prompting unprecedented social unrest and a recession of a size not seen since the second world war.

The Greek economy is projected to contract by over 5% this year; GDP has fallen almost 16% over the past three years. The new bailout programme will concentrate more on spending cuts, with the finance ministry announcing that €4.4bn will be saved by reining in expenditure on welfare and defence. Loss-making state utilities will also be shut.

But on Wednesday, experts said the policy switch would only work if more rescue funds were pumped into the programme, which currently stands at €130bn. A deal to restructure Greece's €350bn debt – due to be announced by the end of the week – would also be vital, they said.

Greek officials have repeatedly blamed the worse-than-expected recession on missed fiscal targets, arguing that further wage cuts, demanded in the name of boosting competitiveness, would serve only to exacerbate the downturn.

Yet while foreign lenders have often levelled criticism at Greece for failing to implement long-overdue economic and structural reforms, Thomsen conceded that the time had come to show more "sensitivity".

"I share the frustration of many Greek officials that much of the criticism from abroad overlooks the fact that Greece has done a lot, at a great cost to the population. While much still needs to be done, Greece has already come quite a long way. Failing to recognise this will not help mobilise support for the programme.

"In this regard, I think that officials – myself included – need perhaps to be more sensitive to ensuring that we send a balanced signal when we say that the programme is off-track," Thomsen said.